Market Monitor Food Hungary 2016

Gearing of food businesses is generally high, and can be a significant risk for companies with weak profitability and focus on the domestic market.

The food and beverage industry is one of the most important sectors of the Hungarian economy. It is the second-largest employer and the third-biggest producer in the manufacturing sector, accounting for more than 10% of industrial output. Food export revenues are a significant contributor to Hungary´s overall trade surplus.

Hungary´s food sector is expected to grow 3.3% in 2016 and 2.4% in 2017. Exports have emerged as the main driving force of the industry. The main export products are fruits and vegetables, meat and dairy products, with over 90% of exports bound for the European Union. However, the high export exposure makes the sector susceptible to global volatility.

While profitability of food businesses has increased in 2015 and remained stable in 2016, it still remains low compared to other Hungarian industries. One of the main challenges in the domestic market is the overall high tax burden that dampens household consumption.

The average payment duration in the Hungarian food industry is 60 days. The number of protracted payments, non-payments and insolvency cases has remained stable over the last six months, and no increase is expected in the coming months. However, the food sector´s insolvency rate (3.5% for food and beverage producers in 2015) is still above average compared to other Hungarian industries (2.7% in 2015). Financial gearing of Hungarian food businesses is generally high, and can be a significant risk for businesses with weak profitability.

Our underwriting stance remains generally open, as food turnover is expected to increase further and business proftability remains adequate.